Irs Publication 970

Money Matters: Saving For College With A 529 Plan

Parents looking to take advantage of the many benefits of saving for college with a 529 plan will want to know the full details on which educational expenses qualify for tax-free distribution status, and which do not. In Publication 970, the IRS gives detailed guidance on qualified expenses. Here are a few important points.

What’s Covered:

Tuition and fees are covered in full Room and board -- if the student is enrolled at least half time. But such expense must be not more than the greater of (1) the allowance for room and board, as determined by the school, that was included in the cost of attendance; or (2) the actual amount charged if the student is residing in housing owned or operated by the school. Food. Amounts spent for a 24/7 meal plan or its equivalent can be deducted, even if used for snacks, coffee or ice cream. Computers/laptops, but only if required by the school. If required, Internet fees and PDAs, or “smart phones” may also qualify. Special needs services required by special-needs students that are incurred in connection with enrollment or attendance at school.

What’s Not Covered:

Student loans, interest on or repayment of student loans is not considered a qualified expense by the IRS Insurance, sports or club activity fees, and many other types of fees that may be charged to students but are not required as a condition of enrollment. Transportation to and from school Concert tickets or other entertainment costs, unless attendance is requisite to a course or curriculum.

Note that expenses must apply to a qualified college, university or vocational school for post-secondary educational expenses. Also keep in mind that taxes and a possible 10 percent penalty will apply to all distributions that are not considered qualified educational expenses by the IRS, so be sure to check first.

Finally, it is important to keep good records in case of an IRS audit whether funds are paid directly from a 529 plan or as reimbursements to you for expenses you paid.

How To Calculate Taxes on Scholarships and Grants – irs ...

Learning how to calculate taxes on scholarships and grants is not as difficult as it may sound.  One of the places to learn about taxation for scholarships and grants is irs.gov .  They have a special section just for students, whichreminds students that they may also have to file income taxes on the earnings that they received from their work-study jobs.  The rules regarding taxes on scholarships and grants state that these funding sources are subject to somewhere between fourteen and thirty percent withholding for federal tax purposes. Remember that some of these withholding rules do not apply to international students who are here on a year-to-year academic visa or some other kind of work grant. Also, remember: the larger the grant or scholarship, the more of the scholarship will be taxed, unless you are able to claim other deductions on your tax return.

The Internal Revenue Service even provides students with a special W-4 Form, which details some of the rules and obligations regarding the taxation of grants and scholarships, and federal work programs such as fellowship at certain institutes, including, for example, the F.A. Hayek Foundation.  Many students are probably unaware that their fellowships can be taxed, but of course if a student is involved in a federal fellowship such as those offered by F.A Hayek, she is probably aware that her fellowship will be taxed.

Even if a student does not file the appropriate forms regarding the scholarship, the person granting the scholarship can still use this process as a way to have an extra deduction on their return, and these monies are closely tracked by the IRS.  It’s best for students receiving scholarships, grants, or any federal monies at all to review IRS Publication 970 prior to filing their taxes. This document outlines all regulations concerning taxation of educational funds received by college students.

Remember that you can file your tax return electronically online; you may also submit your tax return through the IRS website .  A student simply may not have the time or the funds to take her return to H&R Block or Jackson Hewitt simply to find out how much she will be taxed on her scholarship.  It’s a cheaper, and simpler, option to take the time to review Publication 970 yourself, at your leisure, and to file your taxes online or by mail.  Of course, if you have any questions at all after reviewing the IRS website, you should definitely turn to an established tax accountant such as the ones at H&R Block – just make sure that you also educate yourself on the tax regulations surrounding your scholarships or grants.

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